-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R11B1gg69Ezpv619uBCGdTw/d8VsYk2ZgnGiYahaW3hU0QC/9Lyd+bUXGuv2l7K7 Px3qySJg9eCTw8TanmgvOA== 0001021408-02-006580.txt : 20020510 0001021408-02-006580.hdr.sgml : 20020510 ACCESSION NUMBER: 0001021408-02-006580 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEARNING TREE INTERNATIONAL INC CENTRAL INDEX KEY: 0001002037 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 953133814 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27248 FILM NUMBER: 02642074 BUSINESS ADDRESS: STREET 1: 6053 W CENTURY BLVD CITY: LOS ANGELES STATE: CA ZIP: 90045 BUSINESS PHONE: 3104179700 MAIL ADDRESS: STREET 1: 6053 W CENTURY BLVD CITY: LOS ANGELES STATE: CA ZIP: 90045 10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) {X} Quarterly report pursuant to Section 13 and 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2002 -------------- or { } Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission file number 0-27248 ------- Learning Tree International, Inc. ------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 95-3133814 --------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 6053 West Century Boulevard, Los Angeles, CA 90045 ------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (310) 417-9700 ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ ----- The number of shares of common stock, $.0001 par value, outstanding as of May 3, 2002, is 18,721,089 shares. Total number of pages 20 ----- LEARNING TREE INTERNATIONAL, INC. FORM 10-Q March 31, 2002 TABLE OF CONTENTS
Part I--Financial Statements Page ---- Item 1. Financial Statements: Condensed Consolidated Balance Sheets .............................................. 3 Condensed Consolidated Statements of Operations .................................... 4 Condensed Consolidated Statements of Stockholders' Equity .......................... 5 Condensed Consolidated Statements of Cash Flows .................................... 6 Notes to Condensed Consolidated Financial Statements ............................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................................................... 8 Part II--Other Information Item 1. Legal Proceedings .................................................................... 18 Item 2. Changes in Securities ................................................................ 18 Item 3. Defaults Upon Senior Securities ...................................................... 18 Item 4. Submission of Matters to a Vote of Security Holders .................................. 18 Item 5. Other Information .................................................................... 18 Item 6. Exhibits and Reports on Form 8-K ..................................................... 18 Signatures ...................................................................................... 20
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, September 30, 2002 2001 ------------- ------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents ..................................................... $ 103,413,000 $ 108,544,000 Trade accounts receivable, net ................................................ 12,896,000 15,990,000 Prepaid marketing expenses .................................................... 1,970,000 2,212,000 Prepaid income taxes .......................................................... 6,837,000 5,155,000 Prepaid expenses and other .................................................... 7,051,000 5,815,000 ------------- ------------- Total current assets ........................................................ 132,167,000 137,716,000 ------------- ------------- Equipment, property and leasehold improvements, net ............................. 25,532,000 27,856,000 Long-term interest-bearing investments .......................................... 7,147,000 7,353,000 Other assets .................................................................... 1,984,000 2,050,000 ------------- ------------- Total assets ................................................................ $ 166,830,000 $ 174,975,000 ============= ============= LIABILITIES Current liabilities: Trade accounts payable ........................................................ $ 11,349,000 $ 17,041,000 Deferred revenue .............................................................. 58,444,000 61,662,000 Accrued liabilities ........................................................... 7,816,000 7,316,000 Income taxes payable .......................................................... 1,551,000 2,725,000 ------------- ------------- Total current liabilities ................................................... 79,160,000 88,744,000 ------------- ------------- Deferred income taxes ........................................................... 177,000 178,000 Deferred facilities rent ........................................................ 2,361,000 1,993,000 ------------- ------------- Total liabilities ........................................................... 81,698,000 90,915,000 ------------- ------------- Commitments and Contingencies STOCKHOLDERS' EQUITY Common Stock, $.0001 par value, 75,000,000 shares authorized, 18,872,000 and 18,929,000 shares issued and outstanding, respectively ................................................ 2,000 2,000 Preferred Stock, $.0001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding .................................. -- -- Additional paid-in capital .................................................... -- -- Cumulative foreign currency translation ....................................... (5,151,000) (4,584,000) Retained earnings ............................................................. 90,281,000 88,642,000 ------------- ------------- Total stockholders' equity .................................................. 85,132,000 84,060,000 ------------- ------------- Total liabilities and stockholders' equity .................................. $ 166,830,000 $ 174,975,000 ============= =============
See accompanying notes to condensed consolidated financial statements. 3 LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended March 31, March 31, --------------------------------- --------------------------------- 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Revenues ........................................... $ 40,635,000 $ 57,990,000 $ 87,806,000 $ 120,094,000 Cost of revenues ................................... 18,468,000 24,155,000 39,460,000 47,768,000 ------------- ------------- ------------- ------------- Gross profit ................................. 22,167,000 33,835,000 48,346,000 72,326,000 ------------- ------------- ------------- ------------- Operating expenses: Course development ........................... 2,287,000 3,116,000 4,777,000 5,936,000 Sales and marketing .......................... 13,064,000 17,064,000 26,089,000 31,581,000 General and administrative ................... 6,122,000 6,878,000 12,897,000 13,415,000 ------------- ------------- ------------- ------------- 21,473,000 27,058,000 43,763,000 50,932,000 ------------- ------------- ------------- ------------- Income from operations ............................. 694,000 6,777,000 4,583,000 21,394,000 ------------- ------------- ------------- ------------- Other income (expense): Interest expense ............................. (2,000) (3,000) (6,000) (4,000) Interest income .............................. 681,000 2,027,000 1,508,000 4,513,000 Foreign exchange ............................. (101,000) (359,000) (352,000) (534,000) Other ........................................ (113,000) (50,000) (133,000) (136,000) ------------- ------------- ------------- ------------- 465,000 1,615,000 1,017,000 3,839,000 ------------- ------------- ------------- ------------- Income before provision for income taxes ........... 1,159,000 8,392,000 5,600,000 25,233,000 Provision for income taxes ......................... 412,000 2,979,000 1,988,000 8,958,000 ------------- ------------- ------------- ------------- Net income ......................................... $ 747,000 $ 5,413,000 $ 3,612,000 $ 16,275,000 ============= ============= ============= ============= Earnings per common share .......................... $ 0.04 $ 0.25 $ 0.19 $ 0.74 ============= ============= ============= ============= Earnings per common share assuming dilution ..................................... $ 0.04 $ 0.24 $ 0.19 $ 0.72 ============= ============= ============= ============= Weighted average number of shares outstanding .................................. 18,956,000 21,761,000 18,936,000 21,873,000 ============= ============= ============= ============= Diluted shares outstanding ......................... 19,274,000 22,520,000 19,253,000 22,663,000 ============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements. 4 LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
FOREIGN ADDITIONAL CURRENCY TOTAL COMMON PAID-IN TRANSLATION RETAINED STOCKHOLDERS' STOCK CAPITAL ADJUSTMENT EARNINGS EQUITY Balance, September 30, 2000 ........... $ 2,000 $ 52,649,000 $ (4,007,000) $ 84,151,000 $132,795,000 Comprehensive income: Net income ................... -- -- -- 16,275,000 16,275,000 Foreign currency translation ................. -- -- (1,095,000) -- (1,095,000) ------------ Comprehensive income ...... 15,180,000 Stock repurchases ............. -- (36,326,000) -- -- (36,326,000) Stock option exercises ........ -- 4,343,000 -- -- 4,343,000 Tax benefit related to stock option exercises ....... -- 1,583,000 -- -- 1,583,000 ------- ------------ ------------ ------------ ------------ Balance, March 31, 2001 ............... $ 2,000 $ 22,249,000 $ (5,102,000) $100,426,000 $117,575,000 ======= ============ ============ ============ ============ Balance, September 30, 2001 ........... $ 2,000 $ -- $ (4,584,000) $ 88,642,000 $ 84,060,000 Comprehensive income: Net income ................... -- -- -- 3,612,000 3,612,000 Foreign currency translation ................. -- -- (567,000) -- (567,000) ------------ Comprehensive income ...... 3,045,000 Stock repurchases ............. -- (2,180,000) -- (1,973,000) (4,153,000) Stock option exercises ........ -- 1,765,000 -- -- 1,765,000 Tax benefit related to stock option exercises ....... -- 415,000 -- -- 415,000 ------- ------------ ------------ ------------ ------------ Balance, March 31, 2002 ............... $ 2,000 $ -- $ (5,151,000) $ 90,281,000 $ 85,132,000 ======= ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements. 5 LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended March 31, ------------------------------------ 2002 2001 --------------- -------------- Cash flows--operating activities: Net income ........................................................ $ 3,612,000 $ 16,275,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................... 4,209,000 3,973,000 Unrealized foreign exchange losses .............................. 279,000 422,000 Losses on disposals of equipment and leasehold improvements .................................................. 11,000 93,000 Deferred facilities rent charges ................................ (41,000) 108,000 Change in net assets and liabilities: Trade accounts receivable ...................................... 2,891,000 2,665,000 Prepaid marketing expenses ..................................... 224,000 (769,000) Prepaid expenses and other ..................................... (1,336,000) (2,110,000) Income taxes ................................................... (2,421,000) (6,051,000) Trade accounts payable ......................................... (5,465,000) (1,962,000) Deferred revenue ............................................... (2,691,000) 7,549,000 Other accrued liabilities ...................................... 445,000 6,158,000 --------------- -------------- Net cash provided by (used in) operating activities ................ (283,000) 26,351,000 --------------- -------------- Cash flows--investing activities: Purchases of equipment, property and leasehold improvements .................................................... (2,159,000) (9,630,000) Retirements of equipment and leasehold improvements ............... 108,000 86,000 Proceeds from short-term interest-bearing investments held to maturity ................................................ -- 68,615,000 Purchases of short-term interest-bearing investments held to maturity ................................................ -- (30,733,000) Other, net ........................................................ 470,000 (175,000) --------------- -------------- Net cash provided by (used in) investing activities ............... (1,581,000) 28,163,000 --------------- -------------- Cash flows--financing activities: Proceeds from exercise of stock options ........................... 1,765,000 4,343,000 Repurchases of Common Stock ....................................... (4,153,000) (36,326,000) --------------- -------------- Net cash used in financing activities ............................. (2,388,000) (31,983,000) --------------- -------------- Effects of exchange rates on cash ................................... (879,000) (2,187,000) --------------- -------------- Net increase (decrease) in cash and cash equivalents ................ (5,131,000) 20,344,000 Cash and cash equivalents at the beginning of the period ............ 108,544,000 116,231,000 --------------- -------------- Cash and cash equivalents at the end of the period .................. $103,413,000 $136,575,000 =============== ============== Supplemental disclosures: Income taxes paid ................................................. $ 4,328,000 $ 9,307,000 =============== ============== Interest paid ..................................................... $ 1,000 $ -- =============== ==============
See accompanying notes to condensed consolidated financial statements. 6 LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 Operations and Significant Accounting Policies: ---------------------------------------------- The accompanying condensed consolidated financial statements have been prepared by Learning Tree International, Inc. ("Learning Tree") pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such regulations. The condensed consolidated financial statements reflect all adjustments and disclosures which are, in the opinion of management, necessary for a fair presentation. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended September 30, 2001 that are contained in Learning Tree's 2001 Annual Report on Form 10-K. Learning Tree's business is subject to substantial risk and fluctuations in earnings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Note 2 Computation of Earnings per Common Share and Earnings per Common Share ---------------------------------------------------------------------- Assuming Dilution: - ----------------- Earnings per common share and earnings per common share assuming dilution are computed using the weighted average number of shares of Common Stock outstanding during the period. Earnings per common share assuming dilution are computed by including the dilutive effect, if any, of all outstanding options to purchase Common Stock using the treasury stock method. To calculate the number of diluted shares outstanding, 318,000 shares and 317,000 shares were added to the weighted average number of shares outstanding for the three and six month periods ended March 31, 2002, respectively. Approximately 759,000 shares and 790,000 shares were added to the weighted average number of shares outstanding for the three and six month periods ended March 31, 2001, respectively. Approximately 134,000 and 792,000 stock options were excluded from the calculation of earnings per common share assuming dilution for the second quarters of fiscal 2001 and 2002, respectively, because they were antidilutive. Note 3 Repurchase of Common Stock: -------------------------- During the second quarter of fiscal 2002, Learning Tree repurchased approximately 117,500 shares of its Common Stock on the open market at a total cost of $2,641,000. Learning Tree repurchased 191,500 shares of Common Stock on the open market at a total cost of $4,153,000 during the six months ended March 31, 2002. Learning Tree may make additional purchases through open-market transactions, but has no commitments to do so. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS - ------------------------- Except for historical statements and discussions, this discussion consists of "forward-looking statements." All plans, projections, and future estimates are forward-looking statements, which in some, but not all, cases, are identified by words such as "anticipate," "estimate," "project," "believe," "expect" and similar expressions. Please do not put undue reliance on forward-looking statements. Forward-looking statements are based on certain factors and assumptions about future risks and uncertainties. Many, but not all, of these factors and assumptions are identified in Exhibit 99, "Risk Factors" to Learning Tree International, Inc.'s ("Learning Tree's") 2001 Annual Report on Form 10-K ("Exhibit 99"). Although Learning Tree believes that the assumptions are reasonable, it is likely that at least some of the forward-looking statements will not come true. Accordingly, Learning Tree's actual results will differ from those suggested by any forward-looking statement, and those differences could be material. Factors that could cause or contribute to such differences include, among others, those factors included in Exhibit 99, as well as, those discussed in other places in Learning Tree's filings with the Securities and Exchange Commission. For example, actual results could differ materially from those projected as a result of Learning Tree's dependence on the timely development, introduction and customer acceptance of courses and products; risks in technology development and introduction; risks associated with the introduction of e-learning either by Learning Tree or its competitors; the impact of competition and pricing pressures; Learning Tree's ability to attract and retain key management and other personnel; risks associated with international operations, including currency fluctuations; the effect of changing economic conditions; Learning Tree's ability to maintain its current operating margins; the effect of adverse weather conditions, strikes, acts of war or terrorism, and other external events. Should one or more of these risks, or any other risk, materialize, or should one or more of the underlying assumptions prove to be incorrect, Learning Tree's actual results may vary materially from those anticipated, estimated, expected or projected. In light of the risks and uncertainties, there can be no assurance that any forward-looking information will in fact prove to be correct. Learning Tree does not undertake any obligation to update forward-looking statements. Overview Learning Tree is a leading worldwide provider of education and training to information technology ("IT") professionals in business and government organizations. Approximately two-thirds of Learning Tree's participants come from Fortune 1000-level companies, their international equivalents and government organizations, and approximately one-third come from small and medium-tier companies. Learning Tree offers a broad, proprietary library of intensive four- and five-day instructor-led courses, representing over 4,000 hours of training. Learning Tree courses focus on client/server technology, operating systems, programming languages, intranet/Internet/Web applications, computer networks, databases, object-oriented technology and IT management. As a vendor-independent provider of IT training, Learning Tree designs its own courses to provide participants an unbiased perspective of software and hardware products and the ability to compare and integrate multiple platforms and technologies from various vendors in a single course. Learning Tree uses a well-defined, systematic approach in developing and updating its course library to provide training that is immediately relevant to course participants working in a broad range of applications and industries. Learning Tree's courses are recommended for college credit by the American Council on Education, and are accepted for college credit at the University of Phoenix. Learning Tree's proprietary course development process also allows it to customize its courses for on-site delivery to its customers. 8 Learning Tree has engaged in limited development and testing of the content, packaging and delivery methodology for Internet-based "e-learning" courses. In testing, even though the completion rates for Learning Tree's pilot "stand-alone" three-hour "e-courses" were more than double recently published industry average completion rates, only a small fraction of the participants completed enough e-courses to cover material equivalent to just one Learning Tree multi-day instructor-led classroom course. As a result, Learning Tree expects to continue to limit its investment in e-learning, and focus its attention on finding ways to use e-learning technology to support its instructor-led course business. Recently, Learning Tree tested "synchronous-format" on-line seminars for use as "previews" or introductions to some of its instructor-led courses. Learning Tree intends to continue testing this delivery format for e-learning as it may prove to be a useful support mechanism for its instructor-led training activities. However, Learning Tree may or may not be successful with this approach, as noted in the Risk Factors in Exhibit 99 to its Annual Report on Form 10-K. Results of Operations In the second quarter of fiscal 2002, Learning Tree's revenues decreased by 30% to $40.6 million from $58.0 million for the corresponding quarter of fiscal 2001. Income from operations for the second quarter of fiscal 2002 was $694,000 versus $6.8 million for the same quarter of fiscal 2001. Net income for the second quarter of fiscal 2002 was $747,000 compared to $5.4 million in the second quarter of fiscal 2001. For the first six months of fiscal 2002, Learning Tree's revenues decreased by 27% to $87.8 million from $120.1 million for the corresponding period of fiscal 2001. Income from operations for the first six months of fiscal 2002 was $4.6 million versus $21.4 million for the same period of fiscal 2001. Net income for the first six months of fiscal 2002 was $3.6 million compared to $16.3 million in the corresponding period of fiscal 2001. Revenue. During the second quarter of fiscal 2002, Learning Tree trained a total of 26,889 multi-day instructor-led course participants compared to 36,639 participants for the second quarter of fiscal 2001. For the first six months of fiscal 2002, the total trained multi-day instructor-led course participants were 57,732 compared to 75,817 participants for the corresponding period of fiscal 2001. Learning Tree believes that the decrease in the number of multi-day course participants is primarily the result of the slowdown in the IT industry and the overall economy. Learning Tree believes that this has resulted in more cautious spending by its customers on IT training. Learning Tree's average revenue per multi-day course participant decreased by 5% for the second quarter of fiscal 2002 and 4% for the first six months of fiscal 2002 as compared to the same periods of the prior year. Approximately three percentage points of this decrease resulted from changes in foreign exchange rates compared to the rates that prevailed in the second quarter of fiscal 2001. In addition, average revenue per multi-day course participant decreased in the second quarter of fiscal 2002 primarily because a larger portion of course participants attended under multiple-course discount programs as compared to the corresponding period in the prior year. Average revenue per multi-day course participant decreased during the first six months of fiscal 2002 for the same reasons, with changes in foreign exchange rates causing two percentage points of the decline. Cost of Revenues. Learning Tree's cost of revenues primarily includes the costs associated with course instructors, course materials and equipment, freight, classroom facilities and refreshments. Learning Tree has structured its business so that the majority of its instructor-led course costs are variable and depend primarily upon the number of course events conducted. Learning Tree schedules its 9 multi-day course events throughout the year based on its assessment of demand. Since Learning Tree's instructors typically work full-time in the IT industry and teach Learning Tree course events as needed, Learning Tree's instructor related costs are largely variable. In addition, although the expenses associated with its own Education Centers are fixed, in some cases Learning Tree can moderate its overall facility expenses by varying its use of rented hotel and conference facilities. During the second quarter of fiscal 2002, the cost of revenues increased to 45.4% of revenues compared to 41.7% in the second quarter of fiscal 2001. For the first six months of fiscal 2002, the cost of revenues increased to 44.9% of revenues compared to 39.8% for the same period of the prior year. The change in the gross profitability of Learning Tree's instructor-led courses primarily reflects an 11% decrease in revenue per multi-day course event for the second quarter of fiscal 2002 and a 12% decrease for the first six months of fiscal 2002 compared to the same periods of the prior year. Revenues per multi-day course event reflect decreases in the average number of attendees per event and the decreases in average revenue per attendee in both the second quarter and the first six months of fiscal 2002 compared to the corresponding periods in fiscal 2001. Learning Tree believes that the decreases in attendees per event primarily reflect the impact of current economic conditions, which lowered Learning Tree's overall attendance rates. In addition, to a lesser extent, the average number of attendees per event in the first six months of fiscal 2002 was impacted by Learning Tree's decision after September 11 to run courses with lower numbers of attendees to maintain its market presence and to serve its customers' training needs. Learning Tree's average cost per event decreased by 4% for the second quarter of fiscal 2002 and by 1% for the first six months of fiscal 2002. These decreases reflect the favorable impact of changes in foreign exchange rates as compared to the exchange rates that prevailed during the corresponding periods in fiscal 2001. Excluding the impact of foreign exchange rate changes, the cost per multi-day course event would have decreased by 1% for the second quarter of fiscal 2002 and increased by 1% for the first six months of fiscal 2002. The decrease in the second quarter primarily reflects reduced spending on instructor training and recruiting and a reduction in the use of rented hotel and conference facilities. The second quarter decrease was partially offset, and the six-month period reflects, the impact of lower utilization of Learning Tree's education centers arising from the decrease in the number of course events conducted in 2002. The cost of revenues for the second quarter of fiscal 2002 was $18.5 million compared to $24.2 million for the same quarter of fiscal 2001. For the first six months of fiscal 2002, the cost of revenue was $39.5 million compared to $47.8 million for the corresponding period in fiscal 2001. These decreases primarily reflect a 21% decrease in the number of course events conducted during the second quarter of fiscal 2002 and a 17% decrease in the number of course events conducted for the first six months of fiscal 2002. During the second quarter of fiscal 2002, Learning Tree presented 1,938 multi-day instructor-led course events compared to 2,452 events during the same period in fiscal 2001. For the first six months of fiscal 2002, Learning Tree presented 4,128 multi-day instructor-led course events compared to 4,983 events during the corresponding period in fiscal 2001. Course Development Expenses. Learning Tree maintains a disciplined process to develop new courses and update its existing courses. The costs incurred in that process, principally for internal product development staff and for subject matter experts, are included in course development expenses. Course development costs also include the costs of Learning Tree's e-learning development activities. In the second quarter of fiscal 2002, course development expenses were 5.6% of revenue compared to 5.4% for the same period of fiscal 2001. For the first six months of fiscal 2002, course development expenses were 5.4% of revenue compared to 4.9% of revenue for the corresponding period in the prior 10 year. These increases were a result of lower revenues, partly offset by a decline in absolute expenditures on course development. Course development expenses decreased 27% to $2.3 million for the second quarter of fiscal 2002 from $3.1 million in the second quarter of fiscal 2001. For the first six months of fiscal 2002, course development expense decreased 20% to $4.8 million from $5.9 million for the corresponding period in the prior year. These decreases primarily reflect a decrease in the number of new course titles developed during the first half of 2002. During slower economic periods, IT hardware and software vendors typically introduce fewer new products, thus requiring the development of fewer new IT courses. In addition, the reduction in course development expense reflects a decrease in spending on e-learning development. Learning Tree has recently released additional multi-day course titles on topics such as Oracle9i, SQL Server and ASP.NET. At the end of March 31, 2002, Learning Tree offered 159 multi-day course titles compared to 152 a year ago. During the second quarter of 2002, Learning Tree introduced two new titles and retired nine old titles. In general, titles are retired when the profits they generate are not sufficient to justify the ongoing cost of marketing them and maintaining their technological content. Learning Tree expects to have approximately 157 course titles in the third quarter of fiscal 2002. The actual number of course titles which Learning Tree will execute, and their delivery dates, are subject to a number of factors such as the hiring and training of staff, perceived customer demand, and the availability of subject matter experts who are also responsible for teaching Learning Tree's instructor-led courses. There can be no assurance that Learning Tree will develop more titles than it retires in any period. Course development costs may increase in the future if Learning Tree expands its instructor-led training course library and as it explores the development of Internet e-learning approaches and technologies. Sales and Marketing Expenses. Sales and marketing expenses include salaries, commissions and travel-related costs for sales and marketing personnel, the costs of designing, producing and distributing direct mail marketing and media advertisements, and the costs of information systems to support these activities. In the second quarter of fiscal 2002, sales and marketing expenses were 32.1% of revenue compared to 29.4% in the second quarter of fiscal 2001. For the first six months of fiscal 2002, sales and marketing expenses were 29.7% of revenue compared to 26.3% of revenue as compared to the same period of fiscal 2001. These increases were a result of lower revenues, partly offset by lower sales and marketing expenses. During the second quarter of fiscal 2002, sales and marketing expenses decreased by 23% to $13.1 million from $17.1 million for the second quarter of fiscal 2001. For the first six months of fiscal 2002, sales and marketing expenses decreased by 17% to $26.1 million from $31.6 million for the corresponding period of fiscal 2001. These decreases primarily reflect a decrease in marketing expenditures, a reduction in sales personnel and lower selling commissions due to the lower level of revenues. During the first six months of fiscal 2002, Learning Tree leveled out the weekly quantities of its mailings as compared to fiscal 2001. This measure caused approximately $500,000 of marketing costs to move from Learning Tree's first quarter of fiscal 2002 into its second quarter, and from its second quarter of fiscal 2002 into its third quarter as compared to the prior year periods. General and Administrative Expenses. As a percentage of revenue, general and administrative costs increased to 15.1% in the second quarter of fiscal 2002 from 11.9% in the corresponding period of fiscal 2001. For the first six months of fiscal 2002, these costs increased to 14.7% from 11.2% as a percentage of revenue as compared to the same period of the 2001 fiscal year. These increases were a result of lower revenues, partly offset by lower general and administrative expenses. General and administrative expenses decreased in the second quarter of fiscal 2002 by 11% to $6.1 million compared to $6.9 million 11 in the same quarter of fiscal 2001. For the first six months of fiscal 2002, general and administrative expenses decreased by 4% to $12.9 million from $13.4 million for the corresponding period in fiscal 2001. The decrease in general and administrative expenses primarily reflects a reduction in incentive accruals, partially offset by an increase in IT staff and related expenses, and staff salary adjustments. Other Income (Expense). Other income (expense) is primarily comprised of interest income and foreign currency transaction gains and losses. In the second quarter of fiscal 2002, other income (expense) decreased to an income of $465,000 from $1.6 million for the corresponding quarter in fiscal 2001. For the first six months of fiscal 2002, other income (expense) decreased to an income of $1.0 million from $3.8 million for the corresponding period of fiscal 2001. Lower interest rates in the marketplace together with the decline in Learning Tree's interest-bearing investments, as a result of repurchases of its Common Stock, caused interest income to decline by $1.3 million in the second quarter of fiscal 2002 compared with the second quarter of fiscal 2001. For the first six months of fiscal 2002, interest income declined by $3.0 million compared with the corresponding period of fiscal 2001. Learning Tree recorded foreign exchange losses of $101,000 in the second quarter of fiscal 2002 compared to foreign exchange losses of $359,000 in the second quarter of fiscal 2001. For the first six months of fiscal 2002, foreign exchange losses were $352,000 compared to $534,000 in the corresponding period of fiscal 2001. These transaction losses arose from receivables and payables denominated in currencies other than the functional currencies of Learning Tree's foreign subsidiaries. Income Taxes. In the second quarter of fiscal 2002, the provision for income taxes decreased $2.6 million to $412,000 compared to $3.0 million for the same quarter of fiscal 2001. For the first six months of fiscal 2002, the provision for income taxes decreased $7.0 million to $2.0 million compared to $9.0 million for the same period in fiscal 2001. The decrease in the income tax provision reflects the decrease in taxable income. Fluctuations in Quarterly Results Historically, Learning Tree's quarterly operating results have fluctuated, and that is expected to continue in the future. The fluctuations may be caused by many factors such as the frequency and availability of course events; the number of weeks in a quarter during which courses can be conducted; the timing, timely delivery, frequency and size of, and response to Learning Tree's direct mail marketing and advertising campaigns; the timing of the introduction of new course titles; the mix between course events held at customer-sites and course events held in Learning Tree's education centers and hotels; competitive forces within current and anticipated future markets served by Learning Tree; Learning Tree's ability to attract customers and meet their expectations; currency fluctuations and other risks of international operations; natural disasters, external strikes, acts of war or terrorism, and other external factors; and general economic conditions and industry-specific slowdowns. Fluctuations in quarter-to-quarter results may also occur as a result of differences in the timing of Learning Tree's spending on development and marketing of its courses and receiving revenues from its customers. Learning Tree's quarterly revenues and income typically reflect seasonal patterns. Generally, Learning Tree's revenue and operating income are greater in the second half of its fiscal year (April through September) than in the first half (October through March). This is due in large part to seasonal spending patterns of Learning Tree's customers, which are affected by matters such as their budgetary considerations; factors specific to their business or industry; and weather, holiday and vacation 12 considerations. There can be no assurance that these seasonal factors or their effects will remain the same in the future. Liquidity and Capital Resources Cash and cash equivalents decreased to $103.4 million at March 31, 2002 from $108.5 million at September 30, 2001. At September 30, 2001, trade accounts payable included $2.7 million required to settle Common Stock repurchases made at the end of fiscal 2001, which were settled during the first few days of fiscal 2002. As a result, during the first half of fiscal 2002 Learning Tree paid approximately $6.9 million in cash for stock repurchases which included the $2.7 million to settle the 2001 year-end stock repurchases and approximately $4.2 million to repurchase approximately 191,500 shares of its Common Stock in the first half of fiscal 2002. Learning Tree may make additional purchases through open-market transactions, but has no commitments to do so. Cash used by operations for the first half of fiscal 2002 was $283,000. Excluding the effects on current liabilities of fiscal 2001 stock repurchases which were paid in fiscal 2002, and fiscal 2001 second quarter stock repurchases of $7.6 million which were paid in the third quarter of fiscal 2001, cash provided by operations during the first half of fiscal 2002 was approximately $2.4 million, compared to $18.8 million in the first half of fiscal 2001. This primarily reflects the changes in profitability and advance payments by customers for future courses. At March 31, 2002, Learning Tree had working capital of $53.0 million. During the first half of fiscal 2002, Learning Tree invested $2.2 million in equipment and facilities compared to $9.6 million in the same period of fiscal 2001. The investments in the current year primarily relate to purchases of course equipment and the build-out of a second education center in Paris, France, which is expected to open in the third quarter of fiscal 2002. The higher level of investment during the prior year was primarily related to the build-out of education center facilities in New York, Chicago and Atlanta. Although Learning Tree expects to continue to invest in additional equipment and facilities in fiscal 2002, as of March 31, 2002, Learning Tree had no other material future purchase obligations, capital commitments or debt. Accordingly, Learning Tree believes its cash and cash equivalents and the cash provided by its operations will be sufficient to meet its cash requirements for the foreseeable future. Outlook For Fiscal 2002 Throughout this document, there have been various forward-looking statements. However, this entire section should be treated as forward-looking and subject to various risks and uncertainties, including those detailed from time to time in Learning Tree's filings with the Securities and Exchange Commission, including Learning Tree's 2001 Annual Report on Form 10-K and in Exhibit 99, "Risk Factors." As economic and market conditions change during fiscal 2002, Learning Tree's future revenues, plans and expenditures will vary from the observations below, and these differences may be material. Backlog. At March 31, 2002, Learning Tree had a backlog of orders for instructor-led courses of $33.1 million, which represented an 18% decrease from the backlog of $40.4 million at March 31, 2001. Only a portion of Learning Tree's backlog is funded. There can be no assurance that orders comprising the backlog will be realized as revenue. Current Trends. During the remainder of fiscal 2002, Learning Tree's business will continue to be influenced by world events, by the economy, and by spending trends in the corporate marketplace for information technology. Although some analysts have stated that they expect the economy and technology spending to begin to recover at some point in the current year, Learning Tree has seen no discernable improvement in demand from its customers. Learning Tree currently believes it is prudent to 13 operate its business based on an assumption that its revenues (adjusted for seasonal fluctuations) will not increase significantly until the general economy and the IT industry begin to improve. At the same time, Learning Tree expects to maintain its course development and delivery infrastructure while spending somewhat more as a percentage of revenues on sales and marketing than in the prior year. Learning Tree believes that this will help it take advantage of the economic improvement when it comes. Effect of Exchange Rates. Approximately half of Learning Tree's business is conducted in currencies other than US dollars, and fluctuations in exchange rates will impact future revenues and expenses when translated into dollars. Exchange rates at May 7, 2002 were very similar to the average rates that prevailed during fiscal 2001. If current exchange rates remain stable through the remainder of fiscal 2002, revenues and net income for the third and fourth fiscal quarters would not be materially affected by exchange rates. Third Quarter 2002 Revenues. With respect to forecasting Learning Tree's revenues for its third quarter of fiscal 2002, some of the factors considered included: . At March 31, 2002, Learning Tree's backlog of $33.1 million was 18% lower than at March 31, 2001. At April 30, 2002, Learning Tree's backlog of $31.7 million was 18% lower than at April 30, 2001. At April 30, 2002, Learning Tree's backlog pertaining to just those courses to be held during the third quarter was 20% lower than it had been a year earlier. . Learning Tree expects to have approximately 156 course titles in the third quarter of fiscal 2002 compared with 163 course titles in the third quarter of the prior year. Learning Tree may continue to retire more courses in coming quarters as it seeks to manage gross profit levels and course development and marketing expenses. . Learning Tree's quarterly revenues and income typically reflect seasonal patterns which generally result in revenue and operating income that is greater in the second half of its fiscal year (April through September) than in the first half (October through March). Learning Tree believes that revenues in the third quarter of fiscal 2001, which declined slightly from the second quarter, did not reflect this typical seasonal pattern because its business had begun to reflect the impact of the economy which was turning downward at that point last year. Based on these factors and Learning Tree's current assessment of general economic conditions, Learning Tree believes that revenues in the third quarter of fiscal 2002 will be approximately $44 million to $46 million, and thus 20% to 24% lower than the revenues of $57.8 million in the third quarter of fiscal 2001. Third Quarter 2002 Gross Margins. During the third quarter of fiscal 2002, Learning Tree expects two factors to adversely impact Learning Tree's gross margins by approximately 2.5% to 3.0% compared with the same quarter last year: . Learning Tree expects this year's trend of fewer attendees per event compared with last year to continue, and to cause revenues per event in the third quarter to be lower than during the same quarter of the prior year. . Lower utilization rates of Learning Tree's education centers are expected to continue to result in higher fixed costs per event compared to the same period last year. Third Quarter 2002 Overhead Expenses. Learning Tree expects overall overhead expenses for the third quarter, to be approximately $2.5 million to $2.7 million lower than in the same quarter of the prior year, even after including the previously discussed movement of approximately $500,000 of 14 marketing expense from its second quarter into its third quarter. This decrease reflects anticipated reductions in marketing activities and costs, lower selling commissions due to lower levels of sales, reductions in sales and other personnel and a decrease in the number of new course titles being developed. Third Quarter 2002 Interest Income. Learning Tree's interest income reflects changes in interest rates, as well as changes in Learning Tree's cash balances. Learning Tree expects its third quarter interest income to be similar to that of the second quarter of fiscal 2002. 2002 Tax Rate. Learning Tree estimates that its tax rate in fiscal 2002 will be approximately 35.5%, which is approximately the same as it was in fiscal 2001. Fiscal 2002. During the remainder of fiscal 2002, Learning Tree will continue to monitor business conditions, and may make adjustments to its operating plans. The uncertainties in the economic and political situation make it difficult to forecast future revenues. If recent economic conditions and attendance rates continue, Learning Tree expects fourth quarter 2002 revenues to be similar to the revenues expected for the third quarter. If this occurs, fourth quarter revenues would reflect a 7% to 10% decline from the fourth quarter of fiscal 2001. The fourth quarter of fiscal 2001 already reflected the general economic slowdown, and in the month of September last year, also reflected some of the effects of the events of September 11. Learning Tree intends to continue to monitor and adjust, as necessary, the balance between investing in market share through ongoing marketing and sales programs and adjusting its costs to be in line with ongoing revenue expectations. In addition, Learning Tree intends to focus on improving the efficiency and effectiveness of its operations. The approach Learning Tree uses will depend on its continued evaluation of ongoing conditions. Learning Tree currently expects that its fourth quarter gross profit and overall overhead expenses as a percentage of revenue will be similar to that expected in its third quarter of fiscal 2002. In addition, Learning Tree expects that its interest income will be comparable to fiscal 2002 third quarter estimates. Quantitative and Qualitative Disclosures About Market Risk Learning Tree's cash equivalents and short-term investment portfolio is diversified and consists primarily of investment grade securities of high-quality financial institutions, government and government agencies, and corporations. The fair value of Learning Tree's portfolio of marketable securities would not be significantly impacted by either a 10 percent (20 basis point) increase or decrease in the rates of interest due primarily to the short-term nature of the portfolio. Learning Tree does not hold or issue derivative financial instruments. Learning Tree's consolidated financial statements are prepared in U.S. dollars, while the operations of its foreign subsidiaries are conducted in their respective local currencies. Consequently, changes in exchange rates can result in exchange losses. The impact of future exchange rates on Learning Tree's results of operations cannot be accurately predicted. To date, Learning Tree has not sought to hedge the risks associated with fluctuations in exchange rates and therefore continues to be subject to such risks. In the future, Learning Tree may undertake such transactions. However, any hedging techniques implemented by Learning Tree might not be successful in eliminating or reducing the effects of currency fluctuations. Critical Accounting Policies Financial Reporting Release No. 60, which was recently released by the Securities and Exchange Commission, requires all companies to include a discussion of critical accounting policies or methods 15 used in the preparation of financial statements. Note 1 of the Notes to Consolidated Financial Statements of Learning Tree's 2001 Annual Report on Form 10-K includes a summary of the significant accounting policies and methods used in the preparation of Learning Tree's Consolidated Financial Statements. The following is a brief discussion of the more significant accounting policies and methods used by Learning Tree. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. For example, the allowance for bad debts is based upon the level of historical write-offs and specific account reviews to estimate the required reserve. Actual results could differ from those estimates. Revenue Recognition. Course events range from two to five days with an average of approximately four days. For individual course enrollments, it is Learning Tree's policy to recognize revenues and the related direct costs of course events as courses are delivered on a straight-line basis. However, for administrative purposes, the revenues and the related costs of course events are recorded upon commencement of each course event. The difference between Learning Tree's revenue recognition policy and recording revenues and related course costs on a straight-line basis is inconsequential. Learning Tree offers its customers a multiple course sales discount referred to as a Training Passport. A Training Passport allows an individual passport holder to attend up to a specified number of courses held by Learning Tree over a one-year period for a fixed price. For a Training Passport, the amount of revenue recognized for each attendance in a course is based upon the selling price of the Training Passport, the list price of the course taken and the estimated average number of courses passport holders will actually attend. Upon expiration of a Training Passport, Learning Tree records the difference, if any, between the revenues previously recognized and the Training Passport selling price. The estimated attendance rate is based upon the historical experience of the average actual number of course events Training Passport holders have been attending. The average actual attendance rate for all expired Training Passports has closely approximated the estimated rate utilized by Learning Tree. If the Training Passport attendance rates change, the revenue recognition rate for all active Training Passports and for all Training Passports sold thereafter is adjusted. Learning Tree believes it is appropriate to recognize revenues on this basis in order to more closely match revenue and related costs, as the substantial majority of its Passport holders do not attend the maximum number of course events permitted under their Training Passport. Learning Tree believes that the use of historical data is reasonable and appropriate because of the relative stability of the average actual number of course events attended by the tens of thousands of Passport holders since the inception of the program in fiscal 1993. Although Learning Tree has seen no material changes in the historical rates as the number of course titles has increased, it monitors such potential effects. In general, determining the estimated average number of course events that will be attended by a Training Passport holder is based on historical trends that may not continue in the future. These estimates could differ in the near term from amounts used in arriving at the reported revenue. Learning Tree also offers a multiple-course sales discount referred to as Training Vouchers. When purchasing Training Vouchers, the customer buys the right to send a specified number of attendees to a Learning Tree course or courses over a one-year period for a fixed price. Revenue is recognized on a pro rata basis for each attendance. If a Training Voucher expires unused, the selling price of the expired Training Voucher is recorded as revenue. Prepaid Marketing Expenses. Prepaid marketing expenses are charged to income in the month in which advertising materials are mailed since the benefit period for such costs is short and the amount of such future benefit is not practically measurable. 16 Course Development Costs. Course development costs are charged to operations in the period incurred. Foreign Currency. Learning Tree translates the financial statements of its foreign subsidiaries from the local (functional) currencies to United States dollars in accordance with SFAS No. 52 "Foreign Currency Translation." The rates of exchange at each fiscal year end are used for translating the balance sheets and the average monthly rates of exchange for each year are used for the statements of operations. Gains or losses arising from the translation of the foreign subsidiaries' financial statements are included in the accompanying consolidated balance sheets as a separate component of stockholders' equity. Gains or losses resulting from foreign currency transactions are included in the consolidated statements of operations. To date, Learning Tree has not sought to hedge the risk associated with fluctuations in currency exchange rates, and therefore continues to be subject to such risk. Facilities, Intangible and Other Long-Lived Assets. Equipment, property and leasehold improvements are recorded at cost and depreciated or amortized using the straight-line method over the assets' estimated useful lives. Learning Tree periodically reviews the carrying value of its facilities, intangible and other long-lived assets to identify and assess any impairment of the carrying value. Facilities Leases. Learning Tree leases its facilities under various operating lease agreements. Certain provisions of these leases provide for cash incentives, graduated rent payments and other inducements. Learning Tree recognizes rent expense on a straight-line basis, which more closely reflects the benefits received. The value of any lease incentives or inducements, along with the excess of the rent expense recognized over the rentals paid is recorded as deferred facilities rent charges in the accompanying consolidated financial statements. 17 PART II - OTHER INFORMATION Item 1: LEGAL PROCEEDINGS None Item 2. CHANGES IN SECURITIES Not Applicable Item 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS Learning Tree held its Annual Meeting on March 4, 2002. During the Annual Meeting of Stockholders the matters that were voted upon were as follows: 1. Election of Directors 2. Approval of the Amendment of the 1999 Stock Option Plan The following are the results of the voting:
1. Election of Directors: Shares for Shares withheld ---------- --------------- Class I Directors for a term expiring in 2005: W. Mathew Juechter 16,303,799 316,726 Howard A. Bain III 16,304,337 316,188
The current terms of the Class II Directors, Michael W. Kane and Mary C. Adams will continue until the 2003 Annual Meeting of Stockholders. The current terms of the Class III Directors, David C. Collins, Eric R. Garen and Gary R. Wright will continue until the 2004 Annual Meeting of Stockholders. James E. Furlan, a Class II Director, resigned as an officer and Director, effective April 19, 2002. 2. The Amendment of the 1999 Stock Option Plan was approved. Item 5. OTHER INFORMATION Not Applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 16.1 Letter of Arthur Andersen LLP regarding change in certifying accountants. b) Reports on Form 8-K 18 A Form 8-K was filed on April 5, 2002, regarding Learning Tree's announcement that its Board of Director's, upon the recommendation of its Audit Committee, dismissed Arthur Andersen LLP who had previously acted as Learning Tree's independent auditors. Learning Tree engaged Ernst & Young LLP as its new independent auditors to audit the financial statements of Learning Tree for the fiscal year ending September 30, 2002, as well as to perform timely reviews of its second and third quarter results for fiscal 2002. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LEARNING TREE INTERNATIONAL, INC. Dated: May 10, 2002 By: /s/ Gary R. Wright --------------------------------- Gary R. Wright Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) 20 EX-16.1 3 dex161.txt LETTER OF ARTHUR ANDERSEN LLP Exhibit 16.1 April 9, 2002 Office of the Chief Accountant Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Dear Sirs: We have read the four paragraphs of Item 4 included in the attached Form 8-K dated April 5, 2002 of Learning Tree International, Inc. (the Company) to be filed with the Securities and Exchange Commission and have the following comments: . We agree with the statement made in the first paragraph in Item 4 with regards to the termination of our relationship. However, we have no basis to agree or disagree with the statements concerning the appointment of Ernst & Young LLP. . We agree with the statements made in paragraph 2 items number 1 and 2 of Item 4. However, we have no basis to agree or disagree with the statement in paragraph 2 item number 3 in Item 4 concerning any consultation between the Company and Ernst & Young LLP regarding the application of accounting principles to a specified transaction or the type of audit opinion that might be rendered on the Company's financial statements during the two most recent fiscal years through the present. . We agree with the statements made in paragraphs 3 and 4 of Item 4. Very truly yours, /s/ Arthur Andersen LLP - ----------------------- Arthur Andersen LLP -----END PRIVACY-ENHANCED MESSAGE-----